SINGAPORE – In a surprising twist, the sole bids for two Government Land Sales (GLS) sites in Zion Road and Upper Thomson Road that some analysts had expected to be spurned for coming in below market expectations, were accepted by the authorities on April 16.

Some say the authorities likely priced in the fact that both sites have unique features adding complexity and costs to land development, which may therefore justify the bids that were submitted at the close of tender on April 4.

The Zion Road parcel A plot is the first GLS site to pilot a new class of long-stay serviced apartments, while the Upper Thomson Road parcel B site is designated for high-rise residences in Springleaf, a predominantly low-rise, low-density housing precinct.

Both uses are untested in those areas, analysts noted.

“The Government may have considered the tender prices submitted to be reasonable, considering the risks that these developers are prepared to take on,” ERA Singapore key executive officer Eugene Lim said.

Mr Justin Quek, chief executive of OrangeTee & Tie, noted that the Upper Thomson Road site “features a conservation element that forms part of the saleable gross floor area, and different height zonings within the same plot”.

For developers, the long-stay serviced apartment component for the Zion Road site requires “a different financial model and investment tenure. Comparing the bid for this site to recent or neighbouring land bids may be a less effective pricing gauge”, he added.

A City Developments (CDL)-Mitsui Fudosan joint venture has put in a bid of $1.1 billion, which reflects a land rate of $1,202 per sq ft per plot ratio (psf ppr), for the Zion Road plot. This is 30 per cent lower than Frasers Property’s winning bid of $955.4 million, or $1,733 psf ppr, for the nearby Jiak Kim Street plot, where the 455-unit Riviere now sits, CBRE said.

The Upper Thomson Road site drew a sole bid from a joint venture between GuocoLand and Hong Leong Holdings unit Intrepid Investments of $779.6 million, or a land rate of $905 psf ppr.

“While the bid was slightly below expectations, it reflects the plot’s large size and the current competitive landscape,” said CBRE head of research for Singapore and South-east Asia Tricia Song.

Cushman & Wakefield Singapore and South-east Asia head of research Wong Xian Yang said the two tender awards reflect the authorities’ cognisance that market conditions have become more challenging amid higher development costs and slowing new home sales.

“The Government has to balance optimising land sales proceeds and pushing out new housing supply to stabilise private home prices.”

Mr Edwin Loo, associate director (economics & property) at real estate consultancy Cistri, said: “With the Zion Road site, we are dealing with a new asset class (for which) there is no historically clear market view on land value.”

As such, this site’s tender award is important, he said, because it “provides comparable land sales evidence for this use, and, in the longer term, once the development is completed, some evidence of the long-term performance” of long-stay serviced apartments.

“It is significant that there was a gap of 12 days between the close of the two tenders and their award,” he added.

“This suggests that there may have been internal deliberation on whether the estimated market value took sufficient account of the fact that developers are likely to price long-stay serviced apartment use relative to long-term rental cash flow, rather than a direct comparison (with) residential GLS sites, where the units are sold.

“GLS sites are usually awarded within one to two days of the close of tender if there are multiple bidders, and if the bids exceed or meet the Government’s reserve price, which is set by the Chief Valuer,” he said.

Mr Loo had spent a decade working at URA and the Chief Valuer’s Office prior to his present role at Cistri.

Meanwhile, Mr Wong noted that lower prices for future new launches may not materialise despite lower land prices, as developers would need to consider their development costs and margins.

Analysts say the pricing of new launched units will be pegged to market pricing at the time of launch. At a land price of $1,202 psf ppr, the break-even cost for the Zion Road project could range between $2,400 psf and $2,600 psf, with launch prices seen starting from $2,700 psf, Mr Leonard Tay, Knight Frank Singapore’s head of research, said.

The $905 psf ppr land rate of the Upper Thomson Road site will likely translate to a launch price of just under $2,000 psf, he added.